Dual Economy: A curse for developing

countries?
Nusrat Jahan Puthee1**
1. Southeast University, Dhaka, Bangladesh.
**correspondence: nusratputhee@gmail.com (Student of Textile Engineering
Department, SEU)

Keywords: Dual Economy, Developing Countries, Economic Development, Rural

Development

Abstract:

Dual Economy is a popular economic model, many Economists think, this model will be
beneficial for developing countries. Most of the developing countries need long-term sustainable
development, so if a country wants to adopt this policy they need to think about many things. A
policy must increase the level of industrialization, the general standard of living, and the amount
of technological infrastructure. In this article, I’ll be talking about, What is the dual economy?
How does it work? Is it beneficial for developing world countries?
Purpose of study:

1. To understand how Dual Economy works.

2. To understand is applicable for developing countries.

What is 'Dual Economy'?

A dual economy is an economic model, which refers to the existence of two different
economic systems within one country, divided by different levels of development,
technology, and different patterns of demand. As an example, 'Dual Economy' models,
in which agriculture is economically distinct from the nonagricultural sector, can
accommodate both views, depending on how they treat mobility of labor & capital
between sectors, and the processes of technical change & investment in each.1

In simple words, This explains the integration of labor between the two classes of a
developing economy, the capitalist sector, and the livelihood sector.
(Image Courtesy: www.economicshelp.org )

The concept of the dual economy was created by Julius Herman Boeke to relate the
coexistence of the Modern Economic & Traditional Economic systems. Julius Herman
Boeke was a dutch economist & lawyer. Another thought of dual economy was given by
Lewis back in 19542
 Julius Herman Boeke

(Image courtesy: https://academictree.org/law/publications.php?pid=91078 )

How does ‘Dual Economy’ work?

As said before, the dual economy system is divided into two sectors.
1. Capital/Urbanized area (Developed sector)
2. Agricultural area (Developing sector)
The developed sector has characteristics like dominant industrial sector, higher
productivity & growth, higher wages, export-oriented, outflows of capital, favorable
terms of trade, advanced technology, almost literate & socially advanced people live in
this sector.
The developing sector is the opposite of the developed sector. It has low profitability
with a strong agricultural sector, low productivity & slow growth, import oriented, the
inflow of capital, adverse terms of tread, nonprogressive technology, not that much
literate & socially underdeveloped.
Urbanization involves resources shifting from an agricultural to an urban sector. The
dual economy models dating back to Lewis (1954) look at sectoral change but are static
models. They focus on the question of urban “ bias”, or the effect of government policies
on the urban-rural divide, and the efficient rural-urban allocation of the population at a
point in time. These two-sector models have an exogenously given “sophisticated”
urban sector and a “backward'' rural Sector. In these models, the marginal product of
labor in the urban sector is assumed to exceed that in the rural sector. Arbitrage in
terms of labor migration is limited by inefficient (and exogenously given) labor allocation
rules such as farmworkers being paid average rather than marginal product or artificially
limited absorption in the urban sector (e.g., formal sector minimum wages). The
literature focuses on the effect on migration from the rural to the urban sector of policies
such as rural-urban terms of trade, migration restrictions, wage subsidies, and the like.
The dual economy and core-periphery models are regional models, with limited urban
implications. Urban models are focused on the city formation process, where the urban
sector is composed of numerous cities, endogenous in number and size. Efficient
urbanization and growth require the timely formation of cities. As policy issues the
extent of market completeness in the national markets in which cities form, the role of
city governments and developers, the role of inter-city competition, and the role of debt
finance and taxation are critical. In the next section, we analyze an urbanization process
in which there are cities. Then we turn to a discussion of some key policy issues.3

Dual Economy & Our future

Most developing countries like South Africa, Ghana, and Zimbabwe follow the Dual
economy system. But they are thinking about getting out of this policy recently. The
dualism of the economy causes discrimination between countries. It links rural-urban
migration & unemployment. As a result, there is a lack of effective policies, literate
people, socially advanced people don’t cater to poor people.
A developing country needs healthy economical growth, sustainable development with
low risk. That's why they need those policies which will work out in long run.
But a country is too determined to apply dualism to the economy, they need to make
drastic changes like, a sector as a whole, agriculture-based units have to be built
together, all the structures, buildings in this place have to be demolished. To do this,
these countries will need a lot more liquid money, which they usually don't have. Those
who are currently in a Dual economy are also in economic trouble themselves. So it can
be said that it is harmful to a new country to adopt a policy like Dual Economy. Because
there's not as much to gain from this policy. Because countries like Bangladesh, Sri
Lanka, Malaysia don't have very large amounts of land and they have already done too
much industrialization. And If they take policies like the dual economy, then the question
arises as to who will buy the products made by them & how much profit they will gain.
The existing policies like SDG, Educational Policies, Pure Water for all will be under
threat. Our future will be at high risk.
So, a dual economy is not a feasible policy for developing countries.

References :
1. Internation Encyclopedia of the Social & Behavior Sciences (Second Edition),
2015
https://www.sciencedirect.com/topics/social-sciences/dual-economy
2. The Lewis Model of Economic Development
3. [Rannis and Fei (1961), Harris and Todaro (1970), and others] as now well
exposited in textbooks [e.g., Ray (1998)].
Urbanization and Growth
J. Vernon Henderson, in Handbook of Economic Growth, 2005